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Netcare Joins Industry In Court Action To Suspend Pricing Regulations NETWORK HEALTHCARE HOLDINGS LIMITED (Co. Reg. No. 1996/008242/06) Code: NTC ISIN number: ZAE000011953 ("Netcare" or "the Group") NETCARE JOINS INDUSTRY IN COURT ACTION TO SUSPEND PRICING REGULATIONS INTRODUCTION Netcare today announced that it intends to join the Pharmaceutical Society of South Africa ("PSSA"), United South African Pharmacists ("USAP"), New Clicks South Africa (Pty) Limited and other industry players in launching urgent legal proceedings against the Minister of Health ("the Minister") to suspend the operation of the medicine pricing regulations and to have them set aside and declared invalid. The decision to apply to the high court for release is a measure of last resort. It is made in the aftermath of failed attempts to constructively engage with the Department of Health ("DOH") over the content of the regulations. A recent invitation to the DOH to attempt to resolve the situation in co-operation with industry players has been refused. Netcare and the other industry players have been left with no choice. THE CURRENT ENVIRONMENT Since the release of the draft regulations and their subsequent promulgation on 2 May 2004, the entire healthcare industry has been confronted with untenable uncertainty due to the unworkable regime sought to be introduced by the regulations. The most important consequence of these regulations is that patient care will be compromised. The promise of savings by the Minister of between 40% and 70% were never achievable as the average industry discount on ethical drugs is approximately 15%. In addition, these regulations will ultimately prejudice accessible, affordable, quality healthcare for all South Africans through: - insecurity and increased emigration of healthcare professionals (an invaluable national asset); - disruptions to the supply chain, especially in the rural areas; - closure of retail pharmacies who currently dispense 56% of all prescriptions; and - increased pressure on the floundering Public healthcare sector. Most of these unfortunate consequences could have been avoided by the introduction of a more transparent and consultative process in the development of a sustainable healthcare policy for all South Africans. NETCARE"S STANCE Since Netcare"s inception it has been advocating the need to make changes primarily to the flawed third-party payor fee for service reimbursive model which has fuelled significant pharmacy inflation. The Group fully supports the introduction of calculated measures to improve the affordability of healthcare to all South Africans through, inter alia: - Arresting spiralling pharmacy inflation, which the single exit price ("SEP") will achieve; - transparency in determining appropriate mechanisms and returns; - ensuring more affordable quality medicines in both the public and private sectors; - mandatory generic substitution with parallel importation of drugs; - a code of conduct for pharmacy advertising; and importantly, changing the reimbursement model to a per diem rate which already is applied to over 60% of all private hospital admissions. ISSUES OF PRINCIPLE The industry issues relating to these and other healthcare regulations relate primarily to: - the unnecessary licensing and regulating of dispensing doctors who only dispense 13% of prescriptions and offer a cost effective package deal for patients; - the constitutionality of setting professional fees; - the inappropriateness of the capped dispensing fee which has no regard for the operating cost of the medicine; and - the anticompetitive benefit and price discrimination afforded to the State which is exempt from the SEP OTHER FACTORS Since Netcare supported the doctors protest march on Parliament earlier in the year, the Group has been unfairly targeted by various Government health departments. The Group remains resolute in the defence of its actions and will always be governed by its solid ethical, social and business principles while continuing to exercise its democratic right in support of the healthcare professionals who are the lifeline of our industry. Netcare has investments valued at over R 6 billion and employs more than 18 000 professional healthcare workers (the majority of whom are from previously disadvantaged communities). The group contributes meaningfully to the fiscus and continues to provide a world class quality healthcare infrastructure and service. Notably, in a recent survey by a reputable monitoring agency, South Africa"s private healthcare sector ranks in the top five in the world for healthcare performance and quality of outcomes which is fundamental to attracting foreign investment. Against this backdrop, criticisms made about the level of pricing and "super profits" by hospital providers are misguided and unjustified. For many years the private healthcare sector has cross-subsidised the price of drugs in the public sector. Netcare welcomes an independent assessment of the returns on assets and capital achieved by all of the industry players in the healthcare chain as well as the cost structures, governance, quality and outcomes of the public healthcare sector. Recent studies have indicated that the returns on equity and operating returns on assets of the hospital groups" are well below those of other businesses in the healthcare chain. Increased longevity and continuous advances in technology have presented global healthcare markets with the challenge of addressing hyper-medical inflation. South Africa"s unique challenge of dealing with the AIDS pandemic and its high crime/accident rate further compounds this issue. Governments worldwide are engaging with the private sector (for example the UK and Portugal together with Netcare) to offer innovative solutions to provide accessible, affordable, quality healthcare solutions. The private healthcare sector is wrongly cast by Government as part of the problem instead of as part of the solution. Netcare is mindful of the challenges faced by our Government and pledges its commitment to working together with all stakeholders and calls for a healthcare CODESA between private and public representatives from the Departments of Health, Finance and Trade and Industry to review healthcare policies so as to ensure better care for all South Africans. 27 May 2004 Sponsor Merrill Lynch South Africa For further information: Dr Jack Shevel Tel: (011) 301 0202 Date: 27/05/2004 05:12:04 PM Supplied by www.sharenet.co.za Produced by the JSE SENS Department
